The ability to keep the production facilities supplied with raw materials and the availability of these facilities are of the utmost importance for the Aurubis Group. Occurrences that considerably restrict our production processes are thus viewed as significant risks and are countered with appropriate measures.
Most of the raw materials for copper production are in the form of copper concentrates. The remaining materials are composed of recycling raw materials and smelter intermedi- ates. Before processing, these input materials are sampled using recognized analysis techniques to determine their value.
To ensure the supply of copper concentrates for BU Primary Copper, we have concluded long-term agreements with a number of concentrate suppliers from various countries. In this way we are able to minimize the risk of production interruptions caused by possible delivery failures. The risk of volatile treatment and refining charges on the spot market is also limited by the long-term nature of the agreements. The production facilities in BU Recycling/Precious Metals were sufficiently supplied overall due to our extensive inter- national supplier network. From today’s standpoint, we expect this sufficient supply situation and utilization of our produc- tion facilities for recycling material to continue. Nevertheless, there are ongoing treatment charge volatilities due to the general copper price trend and the economic situation in par- ticular as well as competition for electronic scrap and other complex recycling materials.
The supply in the production plants in BU Copper Products is mainly covered by copper cathodes produced within the Group. In addition to higher value added, this allows for quality control for copper products during the entire process. We were able to cover the demand for copper cathodes for BU Copper Products internally, therefore ensuring our delivery reliability and the quality of our products. We also procured a sufficient volume of copper-bearing raw materials for the production plants of Business Line Flat Rolled Products. We expect the supply to remain sufficient in this area.
Plant availability was good overall, though it was reduced at times due to scheduled maintenance standstills and small- scale technical disruptions. The resulting effects were limited. Furthermore, a scheduled large-scale shutdown took place in the Hamburg primary smelter and sulfuric acid production facilities during the turn of the fiscal year, with the expected
As a matter of principle, we took organizational measures (for example alarm plans and employee drills) to handle potential incidents such as flooding or fire. We also address the risk of malfunctions by carrying out regular maintenance work and keeping critical replacement parts on hand.
On the one hand, we deal with logistics risks by implement- ing a thorough, multi-step acceptance process for selecting service providers and by avoiding single sourcing. We have an international network of qualified service providers at our disposal. On the other hand, we prevent weather-related risks in the transport chain by avoiding contingency risks through contractual arrangements regarding appropriate alternatives. For example, when part of the Elbe River froze and caused logistical limitations, the effects were contained thanks to preemptive back-up solutions.
PRODUCT SALES
The sales situation for copper products, especially in Europe, remained weak during the past fiscal year. However, we expect demand to stabilize in the current fiscal year. We anticipate a slight improvement in economic conditions. On the whole, price pressure on the market is high owing to overcapacities. The sulfuric acid market also weakened considerably due to much lower demand from the fertilizer industry. We expect a stagnating trend in the next few months because of seasonal factors. In our estimation, this won’t stabilize until the spring. Aurubis sells cathodes that are not processed internally on the international cathode market.
ENERGY
The energy prices tended to decrease in the course of the fis- cal year. We are safeguarded against unplanned cost burdens due to unpredictable and volatile prices on the electricity exchange owing to our electricity contract which has been in effect since 2010. This safeguard corresponds to most of our electricity demand and covers the main German sites. Burdens resulting from changes in potential cost drivers such as EEG, the emissions trade, grid charges and the eco-tax are generally difficult to quantify reliably because of the still uncertain legal situation and changing political conditions. However, we expect costs to increase in the medium term, which could lead to significant strain.
We have dealt intensively with the issue of disruptions in the electricity supply all the way to a widespread blackout fol- lowing the shut-down of a majority of German nuclear power plants. The completion of the Hamburg-Schwerin transmission line has improved supply security for the Hamburg metropoli- tan area.
FINANCES AND FINANCING
Metal price and exchange rate fluctuations represent a potential risk in the buying and selling of metals. This risk is substantially reduced with foreign exchange and metal price hedging. Daily balancing of incoming and outgoing metal quantities from underlying transactions considerably reduces the volumes to be hedged. Backlogs are hedged daily. The same occurs by using financial instruments such as spot and forward contracts for exchange rates and metal prices. Risks from surpluses and deficits are eliminated on a daily basis this way. We have only selected first-rate firms as partners for hedging transactions to minimize the credit risk.
We hedge expected receipts from foreign currencies, especial- ly the US dollar, as far as possible with options and forward transactions. We will continue this in the future as well and expect that we can reduce the risks from metal price and exchange rate fluctuations to a reasonable level with these measures. Economically acceptable exchange rate hedges can only be realized for a limited time, however.
Trade accounts receivable are hedged by commercial credit insurances. Internal risks were only permitted to a very limited extent and after review. The development of the outstanding receivables is monitored weekly. During the reporting period there were no significant bad debts. We do not foresee any threatening trends for future development.
The liquidity supply was secured during the past fiscal year. The credit lines at the banks were also sufficient. From the current perspective, we expect a corresponding trend for the new fiscal year as well. Risks that could result from the resurgence of the sovereign debt crisis in the eurozone are monitored by the treasury function.
ENVIRONMENTAL PROTECTION, LEGAL ISSUES AND ORGANIZATIONAL ASPECTS
There is always a risk that environmental or regulatory provi- sions could become more stringent, leading to added costs or limitations in product marketing. For example, environmental risks resulting from the possible failure to comply with limit values and violations of requirements can have legal conse- quences. We have focused on the environmentally friendly operation of our production facilities for many years now. The environmental standard is an international benchmark that is confirmed by annual certifications in accordance with ISO 14001 and EMAS, for example. We consider ourselves to
be well positioned for the future in this regard. Nevertheless, operational incidents that could have an adverse impact on the environment cannot be completely ruled out.
In a plant with complex processes, employees’ specialist knowledge is an important factor to ensure performance quality. Different measures are intertwined with each other so that Aurubis can continue to count on employees’ know-how. We build connections to qualified young people through our cooperation and contact with universities and foster develop- ment among professionals and managers with qualification measures. In addition, occupational safety and health protec- tion take high priority for us. In this area we focus on respon- sibility, detailed hazard assessments, continuous training and short-term and medium-term goals with the objective of “zero accidents”.
We counter legal, tax and compliance risks with organizational procedures and clear management structures. We are closely following the political discussion about tax issues, for example the financial transaction and capital tax, and their possible effects.
We limit the risks of decreased IT system availability with continuous monitoring, technical precautions and necessary adjustments. The redundant design of our IT infrastructure as well as data recovery and continuity plans counter the risks of possible incidents or disasters. In order to prevent the risks of unauthorized access to company data, we are restrictive in issuing access rights and use the current safety systems. Furthermore, significant risks are largely covered by insurances. We rely on the expertise of an external insurance broker for this purpose.